By Dr. Jack T. Baldwin
BHMI
Disputes and chargebacks have long been a challenge for credit card issuers and merchants, leading to billions of dollars in annual losses. Yet as more of the economy adopts real-time payments, disputes will become even more costly and complex. New POS systems and interfaces enable real-time payments. However, many merchants and providers still operate with legacy back-office infrastructures that can take hours to settle transactions. This gap between payment and settlement leaves them without a true real-time payment system, and it diminishes the customer experience and opens the door to fraud. To prepare for growth in real-time payments, processors need a modern back-office system that can research transactions, manage disputes and track activities in real-time.
Disputes can impact any company that processes payments. A dispute can occur for many reasons, including merchandise not being received, damaged merchandise, merchant errors or buyer's remorse. Many disputes lead to chargebacks where the bank reverses the charge. Typically, merchants are deemed liable for chargebacks, with the burden on them to make the case why it should be reversed.
Disputes are an unavoidable part of business in the payments space, but their occurrences and costs are rising. An October 25, 2022 report by Merchant Fraud Journal found chargebacks are growing at an annualized rate of 1.5 percent and are expected to top $100 billion in 2023. A recent survey by Internet Retailing also discovered chargebacks rose significantly in 2022 and continue to rise due to economic conditions. Forty-four percent of consumers that filed a credit card chargeback in the past year did so because they didn’t receive goods, while 25 percent filed a chargeback because they disagreed with the company’s values or policies.
Growth in real-time payments will make disputes more challenging to manage. Real-time payment methods add complexity to disputes because everything happens instantly.
New payment platforms now offer real-time or near-real-time payments for P2P, payroll adjustments and account-to-account transfers. But because these payments happen almost instantly, consumers and merchants have less time to address disputes or recognize fraudulent transactions. In the United States, Congress and regulators are taking a closer look at how to better protect consumers from real-time payments fraud, according to American Banker.
While checks, cards and ACH payments have built-in methods to reimburse consumers for fraud or to handle returns, most real-time payment networks don't have established channels to expedite these requests. For example, as P2P payments are relatively new to the market, dispute regulations and procedures are in early stages of development. Traditional payment settlements may take longer, but their well-established and well-defined dispute processes give consumers and businesses a greater understanding of the risks and trust that disputes will be resolved. This gap in settlement time and unclear refund policies increases the risk of fraud and diminishes the customer experience. Furthermore, as FedNow opens the door to more real-time payment platforms, many merchants and payment processors are not prepared to handle disputes in whatever new payment methods may come to market.
As the economy prepares to leapfrog into a new world of instant payment methods, organizations can no longer rely on antiquated back-office systems primarily designed for batch processing. They now need new rules, systems, and processes to manage disputes for real-time payments.
Upgrading the back-office to close the gap between transaction authorization and settlement offers many benefits. It enables companies to improve the customer experience by better managing and resolving legitimate disputes. It also allows them to manage chargebacks better, gain more insight and control, identify trends, and reduce volume. And it helps merchants and processors lessen the risk of fraud by closing the gap between the time of the transaction and the settlement.
In the United States, the total time required to research and return P2P funds is similar to traditional methods, even though P2P money transfers occur in near real-time. This does not have to be the case. For example, payment service providers such as Cuscal in Australia now resolve disputes near the time the payment occurred. When Australia’s New Payments Platform launched in 2018, Cuscal faced several challenges in transforming its back-office operations to handle real-time payment dispute management. It eventually implemented a back-office system that accepts real-time investigation requests and enables clients to meet obligations, respond and act in real-time. This helped Cuscal offer a competitive advantage and reduce risk.
Modern software suites now offer solutions to manage real-time payment disputes. These systems can handle the dispute from claim to resolution from the perspective of the issuer and of the acquirer. It offers real-time loading and viewing of the transaction history and dispute, making it easy for companies to research transactions, manage disputes and track activities in real-time. A modern software suite not only helps processors and merchants handle today's disputes, but it also helps them prepare for future payment methods. 
Dr. Jack T. Baldwin is chairman and CEO of BHMI, a leading provider of software solutions focused on the back-office processing of electronic payments. The company is best known as the creator of the Concourse Financial Software Suite, a unique integrated collection of back-office products that allow companies to adapt to the rapidly changing world of payments. For more information, please visit www.bhmi.com/concourse_financial_software_suite/.
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